A registered education savings plan (RESP) is one way to invest in your child's future. It helps you save money for their post-secondary education.
There are immediate benefits to opening an RESP, including generous government grants and the fact that it’s a tax-sheltered account. Each year, the Canada Education Savings Grant (CESG) contributes a minimum of 20% of what you contribute. Depending on your family income1, you could also receive another 20% on your first $500-contribution up to a total of $500 per year. Moreover, eligible families can take advantage of the Canada Learning Bond (CLB) even if they don’t contribute. Eligible families receive an initial $500 the year they open the RESP, and another $100 per year after that, up to a maximum of $2,0002.
Some provinces offer even more RESP incentives. For information on provincial programs, visit the Government of Canada website External link. Opens in a new window..
Who can open an RESP?
Parents, grandparents and friends can open an RESP. The person who opens the RESP is the subscriber and the designated child is the beneficiary. The beneficiary must have a social insurance number and be a Canadian resident. There can be more than one subscriber for each beneficiary.
Anyone can subscribe to an individual RESP. If you choose this option, the beneficiary doesn’t have to be related to you.
Family RESP beneficiaries, on the other hand, have to be related to you by blood or adoption. They can be your children, your spouse's children or your grandchildren (including adopted grandchildren).
As a subscriber, your lifetime contributions are capped at $50,000 per child, but there’s no limit to how much you can contribute annually.
How can I withdraw money from my RESP?
When the beneficiary begins their post-secondary education, they’ll gradually receive Education Assistance Payments (EAPs) through the RESP. EAPs are made up of grants and income generated from the money invested in the RESP. The payments are taxable as income for the student and would be added to any employment income if they work during their studies. Note that invested capital always belongs to the subscriber and is never taxed, regardless of why it’s being withdrawn.
Students begin to receive EAPs when they enroll full- or part-time in a qualifying post-secondary program that’s at least 3 weeks long.
What if my child doesn’t end up enrolling in a post-secondary program?
Among other options, you can name another beneficiary. If the new beneficiary is the brother or sister of the original beneficiary, you can keep the grants, subject to certain conditions.
If there’s no new beneficiary, the grants go back to the government and the contributions are returned to the subscriber.
- You can also transfer the income generated in the RESP to your personal RRSP, subject to certain conditions. In this case, you’ll have to repay the grants.